The Economic Drag of CEO Funk

February 26, 2003

By John A. Byrne Everyone seems to know why the economy is stuck in low gear. An impending war has given investors the jitters. Consumer confidence is in a near free fall. And the downbeat economic data seem to far outweigh the positives. Yet as economists parse every statement by Federal Reserve Chairman Alan Greenspan, they might also want to consider another reason for the country's economic malaise.

Call it the CEO funk. Though rarely measured or discussed, CEO confidence is every bit as important as that much-watched economic barometer that tracks the confidence level of the spending public. After all, it takes upbeat leaders to reinvest for the future and approve spending on technology, machinery, and other big-ticket items that would help get the economy going again. And only if they're bullish will they begin hiring anew and shelve plans to cut still more overhead.

IN THE DUMPS. Yet, if an overall barometer to show how CEOs feel existed, it would give a dismal reading right now. Not all that long ago, with soaring stock prices and labor shortages, CEOs were almost cultural icons. Today, with the combination of a weak economy, an ever-lower stock market, and a startling succession of corporate scandals, they're embattled, belittled, and cursed. Some polls show that the public's respect for chief execss is close to an all-time low. The title of a forthcoming book by financial journalist William G. Flanagan says it all: Dirty Rotten CEOs.

With a sluggish economy that hangs around like a bad winter's cold and fears over what a war might bring, Corporate America is in something of a stalemate. "A lot of businesses have put themselves on hold," says Colin Crook, an adviser to the Wharton Fellows program at the University of Pennsylvania and former chief technology officer for Citibank. "And the feeling of general economic malaise is worsening it. This is a bleak situation, a double whammy. Nobody sees any positive signs of any sort."

In fact, if you add the current business backlash, it's more like a triple whammy. CEOs are feeling understandably swamped by the public outcry against them. The media is more distrustful of corporate leadership than ever before. Shareholders are emboldened by recent governance changes to be more activist. Directors, fearful of increased liability, are quicker than ever to pull the trigger on a chief executive. Employees -- many of them working under the threat of yet another layoff -- are not nearly as admiring, either.

LIGHTNING ROD. Just as many CEOs gleefully assumed much of the credit for their companies' fortunes just a few years ago, they now get the lion's share of blame for slumping stock values that have most investors anxious, if not angry. Yet as leadership maven Warren Bennis points out, CEO leadership is generally thought to be responsible for roughly 15% of organizational effectiveness. Other factors, including external market forces, the economy, and competition, account for the remaining 85%. "We pick on and blame the leader in bad times, just as in halcyon times we venerate or iconize him," says Bennis.

So instead of gaining accolades for their brilliant leadership, CEOs are getting creamed by investors for the evaporation of trillions of dollars in stock market value. Instead of emphasizing growth, top bosses are increasingly focused on cutting costs.

Not only are many CEOs feeling badly, they tend to reinforce the gloom in social circles. When they meet with each other, the dominant talk is decidedly downbeat. "Not many people are talking about their golf games anymore," says one executive headhunter. "It's more in the area of: 'Can you believe the latest [allegations] about [former Tyco CEO] Dennis Kozlowski or [former Sprint CEO] Bill Esprey? Will we ever catch a break?'"

"SNIDE COMMENTS." Of course, you'd be hard pressed to find a chief executive who would openly admit he or she is in a funk. But Marshall Goldsmith, the behind-the-scenes executive coach who counsels several chieftains, says he has never seen the leadership mood so low. "I'm working with one CEO who said that for the first time in his life, he's embarrassed to tell people in a casual conversation that he's a CEO," says Goldsmith. "He doesn't want to be considered one of the crooks in the headlines. Going to a party, and having your neighbors make snide comments about what you do is painful. It doesn't matter how much money you make. Nobody likes that."

When Goldsmith, the subject of a lengthy New Yorker magazine profile last year, wanted to write an essay on highly ethical corporations for Harvard Business Review, he couldn't muster up enough cooperation for the upbeat article. "I talked to two CEOs who I think are role models for integrity, and neither of them wanted to be involved," he says. "They felt the publicity would make them targets. They said it would just inspire someone else to look under every rock to find something to prove they weren't that good. There's almost this implicit assumption of guilt today."

Wherever you go lately, you hear a familiar refrain: "Business isn't fun, anymore." Of course, that attitude reaches far deeper than the corner office. "When I was teaching at Harvard Business School last fall, the second-year MBAs seemed more than a little crestfallen, betrayed even," recalls Bennis. "And some were even teary about their choice of careers. These people weren't CEOs yet, but then when [former Intel Chairman] Andy Grove says something like he's "ashamed" to be a CEO, you get the idea."

HOT DATES. This is far more than a Rodney Dangerfield "I-get-no-respect" problem. With overcapacity in many industries and slumping sales in most, many CEOs realize that a profit turnaround is going to be hard to achieve -- especially in businesses that already are lean. Heck, even Cisco CEO John Chambers, whose effervescent optimism once lit up Silicon Valley, has remained pessimistic about a likely turnaround anytime soon because of the telecom industry's slump.

Frankly, this collective pessimism has no easy cure. Yet CEOs, usually in the glass-is-half-full camp, will eventually come around. The news will turn -- and so will their decisions to reinvest in their businesses. Over time, their tarnished reputations will recover.

And by at least one measure, CEOs still have a lot going for them. A recent survey by a New York dating service, Perfect Match, found that 49% of respondents still find CEOs of public companies the most attractive dates. That compares with 42% for lawyers and just 11% for car salesmen.

Small consolation? Sure, but when things get this bad, anything is something. Senior Writer Byrne covers management for BusinessWeek in New York